CANADA FX DEBT-C$ softens to 1-1/2 week low after Bank of Canada comments

Wed Apr 16, 2014 12:58pm EDT
 
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* Canadian dollar at C$1.1024 or 90.71 U.S. cents
    * Bond prices mostly lower across the maturity curve
    * Bank of Canada holds interest rates steady
    * Bank notes risk of weak inflation

    By Solarina Ho
    TORONTO, April 16 (Reuters) - The Canadian dollar softened
to its weakest level against the greenback in more than 1-1/2
weeks on Wednesday after the Bank of Canada extended its 3-1/2
year freeze on borrowing costs and noted the risk of weak
inflation.
    The central bank's decision to keep its benchmark interest
rate at 1 percent was expected, but the Canadian dollar reacted
bearishly to the tone of the statement, even as Governor Stephen
Poloz held firm on the bank's neutral stance. 
    The Bank of Canada also said in its quarterly Monetary
Policy Report that it sees a faster than expected rise in
Canada's headline inflation, but suggested it would ignore the
measure because it attributed it to temporary price increases in
volatile items and a weaker Canadian dollar. 
    "I think what you're seeing is the bank's plans and guidance
at work," said Brad Schruder, a director of foreign exchange at
BMO Capital Markets, adding that he did not see any surprises in
Wednesday's central bank statements.
    "I think the momentum that had been previously supporting
USD/CAD bulls has actually left them. This pop is actually a
good opportunity to get long Canada."
    The Canadian dollar, which was underperforming
against nearly all of its major currency counterparts, softened
to C$1.1024 versus the greenback, or 90.71 U.S. cents, around
midday, weaker than Tuesday's close of C$1.0977, or 91.10 U.S.
cents.
    Earlier it fell as low as C$1.1034, or 90.63 U.S. cents, its
weakest level since April 4.
    Schruder said he expects the USD/CAD to straddle the 91 U.S.
cent level over the next quarter, and perhaps longer.
    Canadian government bond prices were mostly lower across the
maturity curve, with the two-year off 1 Canadian cent
to yield 1.182 percent and the benchmark 10-year off
10 Canadian cents to yield 2.399 percent.

 (Editing by Peter Galloway)